Life cover provides a lump sum on the death of the insured. The pay-out then goes to the nominated beneficiaries in the policy or, if held in superannuation, to whoever is nominated in a binding nomination.

It is important to note that a life cover payout from your superannuation fund will be distributed by the trustees (as the owner) as they deem fit unless you provide them with a binding nomination dictating who should get the payout.

Life cover outside super is paid directly to the beneficiaries identified in the policy and are paid tax free. Payment isn’t held up in your estate waiting for the executor to wind it up.

There are a number of comparison sites that will let you compare premiums and benefits. An important factor to keep in mind is that premiums can be stepped or level. Stepped premiums start lower than level premiums and increase with the insured’s age. Over time they will be more expensive than if a level premium had been chosen.

The insurer may ask you to complete a health questionnaire which you must answer honestly so they can properly assess the risk. If you do not answer honestly they can repudiate the claim.

You also need to consider what the insurer considers “Total and Permanent Disability” is. If you don’t meet the definition they won’t pay.

There are a number of comparison sites that will let you compare premiums and benefits. Like life cover, premiums can be stepped or level. Stepped premiums start lower than level premiums and increase with the insured’s age. Over time they will be more expensive than if a level premium had been chosen.

Income protection replaces the income you lose while unable to work due to sickness or injury.

Income protection usually pays out around 75% of your income before you became unable to work and is paid for a fixed period. This can be for (say) 2 years or till (say) age 65. naturally the longer the period of cover the higher the premium. Income is taxed in the same way your salary would have been taxed.

There is also a “waiting period” before the benefit starts and again the shorter the period the higher the premium. The most common waiting period is 90 days.

You superannuation fund usually carries income protection (salary continuance) and this will be taken into account. If you have more than one source of income protection in place, the insurer will reduce the benefit by the amounts received from other sources. Other sources that may be taken into account are;

Regular payments from another insurance policy

Regular payments from a superannuation plan

Regular payments from workers compensation

Regular payments from a motor accident claim

Regular payments from claims made under state or federal legislation

There are a number of comparison sites that will let you compare premiums and benefits.

You may need to survive for a specified period (eg 30 days) after being diagnosed.

The pay-out will help with medical and lifestyle expenses while you’re under medical care.

The benefit is paid regardless of your ability to work.

General information

The information on this website is general information and not a recommendation. A recommendation can only be made after taking all your personal circumstances into account. Please consult a licensed financial adviser before making any decision.